Credit Score Disclosure

Federal legislation would demystify credit scores.

By Daniel Walker Guido
Though the terrorist attacks in New York and Washington in September slowed the progress of legislation in the U.S. Congress, work continues on a proposed law to require disclosure of consumer credit scores. Linda M. Johnson, a spokesperson for the National Association of Realtors (NAR), expects Congress will begin consideration of the proposed disclosure law before year's end. NAR is a prime supporter of the disclosure act.

Called the Consumer Credit Score Disclosure Act of 2001, the bill is sponsored by U.S. Senators Wayne Allard (R-Colo.) and Chuck Schumer (D-N.Y.). It would require full disclosure of a consumer's credit score when a prospective home buyer applies for a mortgage.

Currently, mortgage lenders use reports from one of the three major credit reporting agencies to determine a borrower's credit history. Under terms of the federal Fair Credit Reporting Act, borrowers have the right to see their credit reports. But no such right currently exists to allow consumers to see the mathematical model used to determine their credit score.

Why does this matter? Because lenders typically use the credit score not only to determine if a consumer is eligible for a loan, but also to calculate what interest rate to charge and how long a term to assign the loan. "Consumers have no idea whether they are getting a good deal from the lender to whom they become locked into for rates," Johnson explains.

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